The Budget Deficit Scare Story and the Great Recession
|
|
- Mervin Foster
- 7 years ago
- Views:
Transcription
1 The Budget Deficit Scare Story and the Great Recession Dean Baker February 2010 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C
2 CEPR The Budget Deficit Scare Story and the Great Recession i Contents Executive Summary...1 Introduction...2 The Surging Deficit: Where Did It Come From?...3 The Longer-Term Deficit Picture...7 Reducing the Budget Deficit: Who Gets Hit?...10 The Foreign Debt Scare Stories...12 Conclusion...13 References...14 About the Author Dean Baker is an economist and Co-Director of the Center for Economic and Policy Research in Washington, D.C.
3 CEPR The Budget Deficit Scare Story and the Great Recession 1 Executive Summary The country is suffering through the worst economic downturn since the Great Depression. Tens of millions of people face unemployment, underemployment and/or the loss of their homes. The enormous suffering created by this crisis should be the main focus of economic policy. However, a well-funded public relations campaign has managed to largely push the economic crisis to the back burner and instead focus on the federal budget deficit. This anti-deficit campaign has helped to derail efforts to address the downturn, leading to an enormous amount of unnecessary suffering. This paper corrects some of the misperceptions being fostered by the anti-deficit campaign. It points out that: 1) The extraordinary level of current deficits is overwhelmingly the result of the economic crisis. There is little reality to the claim that Congress is out of control in its tax and spending policies. 2) The budget deficit does not pose an economic problem at present. If the budget deficit were smaller, we would simply be seeing higher unemployment. There would be no short-term or long-term benefit from reducing the current deficit. 3) The size of the longer-term deficit problem has been both exaggerated and misrepresented. Projections show that debt-to-gdp ratios will be well within manageable levels at least a decade into the future, even if there are no major changes from baseline scenarios. As a long-term issue, the United States must fix its broken health care system. 4) The wealth of near-retirees has been devastated by the collapse of the housing bubble and the plunge in the stock market. Any substantial reduction in Social Security or Medicare benefits will likely leave large segments of middle-income workers with near-poverty level incomes in retirement. 5) Concerns about foreign ownership of the government debt are offensive jingoism. There is an issue about foreign indebtedness because this implies that an increased portion of future output will be paid out as interest and/or dividends to foreigners rather than being available for domestic consumption. However, this is driven by the trade deficit, not the budget deficit. The trade deficit, in turn, is attributable to the over-valuation of the dollar.
4 CEPR The Budget Deficit Scare Story and the Great Recession 2 Introduction The country is suffering through the worst economic downturn since the Great Depression. Tens of millions of people face unemployment, underemployment and/or the loss of their homes. By any objective standard, the enormous suffering created by this crisis should be the main focus of economic policy. However, a well-funded public relations campaign has managed to largely push the economic crisis to the back burner. Instead, news reports and political debates are filled with discussions of the federal budget deficit. This anti-deficit campaign has helped to derail efforts to address the downturn, leading to an enormous amount of unnecessary suffering. This paper corrects some of the misperceptions being fostered by the anti-deficit campaign. It points out that: 1) The extraordinary level of current deficits is overwhelmingly the result of the economic crisis. If any part of the system is broken, as claimed by some deficit hawks, it is the structure of economic policymaking that allowed for an $8 trillion housing bubble to grow unchecked. It was inevitable that this bubble would eventually burst, leading to the sort of economic crisis that the country is now experiencing. This crisis was both foreseeable and preventable. There is little reality to the claim that Congress is out of control in its tax and spending policies. 2) The budget deficit does not pose an economic problem at present. If the budget deficit were smaller, we would simply be seeing higher unemployment. There would be no short-term or long-term benefit from reducing the current deficit. 3) The size of the longer-term deficit problem has been both exaggerated and misrepresented. Projections show that debt-to-gdp ratios will be well within manageable levels at least a decade into the future, even if there are no major changes from baseline scenarios. As a long-term issue, the United States must fix its health care system. This, not demographics, is the real long-term deficit problem, as can be easily shown. 4) The wealth of near-retirees has been devastated by the collapse of the housing bubble and the plunge in the stock market. The economic prospects for these age cohorts look bleak even assuming currently scheduled benefits from Social Security and Medicare. Any substantial reduction in these benefits will likely leave large segments of middle-income workers with near-poverty level incomes in retirement. 5) Concerns about foreign ownership of the government debt are offensive jingoism. There is an issue about foreign indebtedness because this implies that an increased portion of future output will be paid out as interest and/or dividends to foreigners rather than being available for domestic consumption. However, this is driven by the trade deficit, not the budget deficit. The trade deficit, in turn, is attributable to the over-valuation of the dollar. The deficit hawks have rarely focused on the value of the dollar, preferring instead to hype misleading concerns about foreign (especially Chinese) ownership of government debt. There are real issues with the budget that the country will have to address, however virtually all of the current discussion of the deficit has been misleading and has obstructed the effort to address the
5 CEPR The Budget Deficit Scare Story and the Great Recession 3 worst downturn since the Great Depression. Remarkably, the country is allowing many of the same policy experts whose incompetence led us into this crisis to continue to guide economic policy as we try to cope with the crisis. The Surging Deficit: Where Did It Come From? In fiscal year 2007, the country had a unified budget deficit of $162.8 billion, or 1.2 percent of GDP. Since this was at a business cycle peak, the deficit was arguably higher than would have been desirable, but no one would have claimed a deficit of this magnitude posed any major threat to the economy. Moreover, there was little need for any major concerns about the size of the deficit for the near-term future. The Congressional Budget Office (CBO) projected the deficits to remain low through 2011 and then turn to a small surplus in The budget was projected to remain in surplus through the rest of the decade, as shown in Figure 1. FIGURE 1 Projected and Actual Deficits 2 CBO Projections 2008 (tax cuts expire) 0 Percent of GDP CBO Projections 2008 (tax cuts continue) CBO Projections 2010 ( actual) Sources: The baseline projections are taken from CBO (2008a), Table 1-3. The projections with continuing tax cuts are adjusted using the projected cost of the tax cuts, including interest, from Table 1-5. The post-recession projections are taken from CBO (2010), Summary Table 1. Arguably, this baseline picture is overly optimistic about the deficit since it assumes that President Bush s tax cuts would be allowed to expire at the end of It also assumes that a number of tax cuts that are regularly extended, most importantly the inflation adjustment for the alternative minimum tax, will instead be allowed to expire. Adjusting for these issues makes the budget situation look somewhat worse, but hardly out of control. The deficit in this adjusted set of projections (also shown in Figure 1) averages less than 2.5 percent of GDP in the decade from 2009 to This is probably somewhat higher than would be
6 CEPR The Budget Deficit Scare Story and the Great Recession 4 desirable, but it is still consistent with a stable debt-to-gdp ratio. Also, it is worth noting that the tax cut assumptions in this scenario are somewhat extreme in that they assume that none of the tax breaks for even the wealthiest families are allowed to expire and the estate tax is eliminated completely. Of course the budget situation has turned out much worse than was projected at the beginning of 2008, even under the assumption that the Bush tax cuts and other tax provisions would not be allowed to expire. The deficit jumped to 9.9 percent of GDP in 2009 and is projected to be 9.2 percent of GDP in 2010, as shown in Figure 1. It is not projected to fall back to more normal levels until 2014, when it is projected to be 2.7 percent of GDP. In 2018, the last year of overlap between the two sets of projections, the 2010 CBO baseline shows a deficit of 2.6 percent of GDP compared to a surplus of 1.0 percent of GDP in the 2008 baseline. While this is a marked deterioration in the budget picture, the overwhelming majority of this change is attributable to the worsening of the economic situation rather than legislated changes in taxes or spending. Higher interest payments alone, due to the large budget deficits directly caused by the recession, account for almost half of the increase in the deficit projections over this period. The weaker economy projected for 2018 also contributed to the rise in the projected deficit, most importantly by reducing revenue and increasing payments for various transfer programs like food stamps. CBO has downgraded its projection for growth over the decade and now projects the unemployment rate to be 5.0 percent in 2018, compared to 4.8 percent in its 2008 projection. The contribution of legislated changes in spending and taxes to the larger deficit is relatively small. Only 21.8 percent of the increase in the projected deficit for 2018 over this period was attributable to legislated changes in spending. And almost 60 percent of this increase was in defense-related spending, as shown in Figure 2. Legislated changes in non-defense spending increased the deficit projected for 2018 by less than 0.3 percent of GDP. Legislated changes in revenue actually went the other way, reducing the deficit projected for 2018 by $20 billion, or 0.1 percent of GDP, between 2008 and These calculations were obtained from summing the Congressional Budget Office s calculations of the changes in its budget projections due to legislation, from CBO 2008(b) (Table A2), CBO 2008(c) (Table A-1), CBO 2009(a) (Table 8), CBO 2009(b) (Table 1-3), CBO 2009(c) (Table A1), and CBO 2010 (Table 1-3).
7 CEPR The Budget Deficit Scare Story and the Great Recession 5 FIGURE 2 Change in the Deficit Projected for 2018 (January January 2010) Economic and Technical Changes Interest Nondefense Defense and Veterans Source: CBO, see footnote 1. In short, the longer-term budget picture did not deteriorate primarily due to a spending splurge or a spree of tax cutting, but rather due to a much higher projected interest burden and a weaker economy. This higher interest burden is in turn a direct result of the high deficits incurred during the downturn, which have substantially increased the national debt. The jump in the deficit in 2009 and 2010 is also not a result of wasteful spending or reckless tax cuts. There were three factors that led to the extraordinary increase in the deficits in these years. First and most importantly, the deficits rose for normal cyclical reasons. The budget deficit always increases when the economy weakens. Tax collections fall when income falls. Similarly, benefit payments for programs like unemployment insurance and food stamps rise when more workers lose their jobs. The second reason that the deficits rose was due to the bailouts of Fannie Mae, Freddie Mac, AIG, and other bankrupt companies. CBO calculated that these bailouts added $243 billion (1.6 percent of GDP) to the deficit in Finally, the stimulus package approved by Congress last February added $200 billion to the deficit in fiscal year 2009 and is projected to add $404 billion in While the trillion-dollar-plus deficits for 2009 and 2010 have often been held up as examples of out of control government spending, the main result of a smaller deficit in these years would simply be weaker growth and higher unemployment. The reason for the downturn is the plunge in private sector spending associated with the collapse of the bubbles in residential and non-residential construction. This fall in spending has left the economy far below full employment levels of output. The conventional argument against budget deficits is that they pull resources away from the private sector. The government s borrowing raises interest rates, thereby reducing private sector investment and consumption. However, there is currently no basis for concern about the government pulling away resources from the private sector since there is an enormous amount of unemployed labor and capital. In addition, interest rates are presently at historically low levels, being kept there by Fed 2 CBO (2010), Table A-1.
8 CEPR The Budget Deficit Scare Story and the Great Recession 6 policy. This means there is no remotely plausible case that government deficits are crowding out private investment. Rather, the stimulus provided by government spending has boosted the economy. CBO projected that in 2009 the stimulus added between 1.4 percent and 3.8 percent to GDP and in 2010 that it will add between 1.1 percent and 3.4 percent to GDP. CBO also projected that the stimulus would lower the unemployment rate in 2009 by between 0.5 percentage points and 1.2 percentage points, as shown in Figure 3. It projected that it would lower the unemployment rate in 2010 by between 0.6 percentage points and 1.9 percentage points. FIGURE 3 Impact of the Stimulus Package on the Economy Percentage Points Addition to GDP Source: Averages of ranges in CBO (2009d), Table 3. Reduction in Unemployment Given the boost to the economy and employment from the deficits, it would be irresponsible not to run large deficits in the current economic environment. In fact, given the extent of the suffering associated with levels of unemployment that are now projected to remain well above normal levels until 2015, it is arguably irresponsible not to run larger current deficits. The main reason that people cannot find work at present is not that they lack the necessary skills or are unwilling to work, but rather that economic mismanagement has led to a situation in which the economy is operating well below full employment levels of output. By not providing sufficient economic stimulus to bring the economy more quickly back to full employment, policymakers are making a decision to perpetuate this suffering. Inadequate stimulus will leave willing workers unable to find jobs and to properly support their children. This is a high
9 CEPR The Budget Deficit Scare Story and the Great Recession 7 price to impose on ordinary workers simply because the economy was poorly managed by people in positions of responsibility over the prior decade. The Longer-Term Deficit Picture The main argument made against additional stimulus at this point is that it would jeopardize the standing of the U.S. government in financial markets. This assertion seems to contradict the current behavior of financial markets, where long-term Treasury debt continues to be held at very low yields. If financial markets questioned the ability of the U.S. government to honor its debt, they should already be demanding a premium on longer-term issues, like 10-year or 30-year Treasury bonds. As it stands, these bonds continue to trade at interest rates that are near post-world War II lows. In other words, the investors who are actually betting on the financial health of the U.S. government don t seem to share the fears of the policy analysts and economists complaining about the deficit. It is also worth noting that neither the current debt-to-gdp ratio or the ratio projected for 2020 stand out for being especially high compared to either past U.S. levels or the levels of other advanced countries at present. CBO projects that the year-end debt-to-gdp ratio for 2010 will be 60.3 percent. It projects that this ratio will rise to 66.7 percent by the end of Even assuming that normal adjustments are made to the baseline for the extension of expiring tax provisions and other predictable additions to the deficit, the debt-to-gdp ratio is still likely to be under 90 percent by the end of the decade. By comparison, the debt-to-gdp ratio at the end of 1946 was percent of GDP. 4 So, by historic standards, even at the end of the next decade, the United States will still have some distance to go before it reaches prior peak levels of indebtedness. There are also many other advanced countries at present that have considerably higher debt levels, as shown in Figure 4. According to the data from the International Monetary Fund, France and Germany will have ratios of net debt-to- GDP of 67.0 percent and 70.3 percent, respectively, at the end of this year. Japan will have a ratio of net debt-to-gdp of percent and Italy will have a ratio of percent. 5 3 CBO (2010), Summary Table 1. 4 Economic Report of the President, 2009, Table b-79, available at 5 International Monetary Fund, World Economic Outlook Database, available at
10 CEPR The Budget Deficit Scare Story and the Great Recession 8 FIGURE 4 Comparison of Debt-to-GDP Ratios Percent U.S projection U.S projection U.S France 2009 Germany 2009 Japan 2009 Itay 2009 Source: CBO, ERP, and IMF. See footnotes 4-6. While high debt-to-gdp ratios can impose a burden on government finances and the economy, the point of these comparisons is that there is no reason to believe that the United States faces any imminent danger of a flight from its debt. It has carried a considerably larger debt burden in the past and had no difficulty finding willing lenders at the time. Other countries that currently carry much higher debt burdens are still able to borrow at relatively low cost in financial markets. In short, there is no reason to believe that the United States faces any near-term or even mid-term loss of confidence based on its debt levels. As a practical matter, it is also not even clear what a crisis in confidence could look like. If domestic and foreign investors lost confidence in the government s ability to service its debt, then presumably this would lead to a flight from the dollar. This is turn would put downward pressure on the dollar relative to other currencies. Of course, it has been official policy of both the Bush and Obama administrations that the dollar should fall against the Chinese yuan. So perhaps the flight from the dollar would bring about this longstanding policy goal and thereby make U.S. goods more competitive in world markets. If investors were to flee the dollar because of the indebtedness of U.S. government, which country could they turn to as a safe haven, since most other wealthy countries have comparable or higher levels of indebtedness? Furthermore, if there were a large-scale flight from the dollar, would our trading partners tolerate a very low and therefore hypercompetitive value of the dollar? How large would Europe s trade deficit with the United States be if the euro bought 2.5 dollars? Would Canada
11 CEPR The Budget Deficit Scare Story and the Great Recession 9 let the U.S. dollar fall to the point where it was only worth 50 Canadian cents? Would the U.K. let the dollar fall to the point where the exchange rate was 3 dollars for a pound? A moment s reflection should indicate the absurdity of the scenario of a flight from the dollar. Our trading partners would have no choice except to intervene to keep the dollar from falling too low; otherwise they would see large sectors of their economies destroyed by competition from much lower-cost U.S. exports. This is not an argument for pursuing reckless fiscal policies. However, the scenario of a full-fledged collapse of the dollar, in a world where the U.S. economy is otherwise healthy, is absurd on its face. There is one final point in this picture that deserves attention. Many analysts have highlighted the longer-term fiscal deficit picture, which is indeed bleak. 6 However, these disastrous deficit projections are driven almost entirely by the assumption that per person costs of the U.S. health care system continue to get ever further out of line with costs in other wealthy countries. Figure 5 shows the Congressional Budget Office s long-term deficit projections. It also shows projections that assume that per person health care costs (adjusted for aging) follow the path of per person costs in the United Kingdom, Germany, or Canada. In each of these three scenarios, the country would be looking at a future of enormous surpluses under CBO s assumptions, instead of exploding deficits. FIGURE 5 Projected Budget Deficit as Percent of GDP under Alternate Scenarios Source: CBO (2009e) and World Bank, World Development Indicators. This graph should make clear that the United States really does not have a long-term deficit problem. Rather, it has a long-term health care problem, which is a problem of the private health 6 Government Accountability Office, The Federal Government's Long-Term Fiscal Outlook: Fall 2009 Update, Washington, D.C.: Government Accountability Office, available at
12 CEPR The Budget Deficit Scare Story and the Great Recession 10 care system. It becomes a deficit problem because more than half of all health care is paid for through public sector programs like Medicare and Medicaid. This suggests the urgency of fixing the U.S. health care system. The reforms put forward by President Obama last year were obviously a step in this direction, although it is not clear what reforms will actually be approved (if any) and the extent to which they will control costs. In the event that reform of the domestic health care system proves politically impossible, the alternative would be to rely increasingly on more efficient foreign health care systems. It is not difficult to design mechanisms that would facilitate international trade in medical services. 7 It is surprising that either fixes to the health care system or the promotion of greater reliance on foreign health care systems have not received greater attention from those raising concerns about budget deficits. Reducing the Budget Deficit: Who Gets Hit? Almost invariably, efforts to trim the budget deficit focus on Social Security, Medicare, and Medicaid, programs that primarily serve the elderly population. 8 Remarkably, these discussions rarely seem to examine the well-being of the groups that will be most affected by proposed cuts. While most proposals for deficit reduction would leave current retirees unharmed, they often do propose substantial cuts in benefits for near-retirees, workers who are currently in their fifties or late forties. It is important to recognize that this was precisely the age-cohort that was hit hardest by the collapse of the housing bubble. For most middle-income families, their primary source of wealth is their home. These workers were old enough to have accumulated some equity in their home, but in most cases were still highly leveraged, since they were far from having paid off their mortgage. This meant that the plunge in house prices that resulted from the collapse of the bubble largely wiped out their equity. This point can be seen with a simple example. If a worker has fully paid off a mortgage on a $300,000 home and it falls in price by one-third, she has lost one-third of the equity in her home. However, if she only has $100,000 in equity in a home that is worth $300,000 and the price falls by one-third, then she has lost 100 percent of her equity. This describes the situation faced by many workers who are now within years of retirement. Many of them had accrued substantial equity in their homes, but saw most or all of it wiped out with the collapse of the housing bubble. Figure 6 shows the net worth for the middle quintile of the cohorts ages and ages in 2007 and in As can be seen, much of their wealth was eliminated with the collapse of the housing bubble. The average net worth for the middle quintile of households age is approximately $180,000, a bit more than the $170,000 price of the median 7 See Baker (2004), Matoo and Rathindran (2006), and Baker and Rho (2009). 8 It is worth noting that the Congressional Budget Office projects that Social Security benefits will be fully funded by its designated tax through the year This makes the quest to cut Social Security rather peculiar since it implies a desire to finance defense and other parts of the budget through a tax that is designated as a Social Security tax. This sort of measure may seriously undermine public confidence in government and perhaps its willingness to voluntarily comply with the tax code.
13 CEPR The Budget Deficit Scare Story and the Great Recession 11 home. 9 In other words, a typical household in this age group could use all of their wealth to pay down the mortgage on their home and then would have essentially nothing other than Social Security benefits to support them in retirement. FIGURE 6 Net Worth of Near-Retirees Ages Ages Thousands of 2009 $ Source: Federal Reserve Board s Survey of Consumer Finance and Rosnick and Baker (2010). The average wealth for the middle quintile of the age group is just $81,000, a bit less than half of the cost of the median house. This group still has some time left in the labor force before retirement, so they may be able to accumulate enough to be able to pay off the mortgage on the median house, but it is difficult to see how they can save sufficiently in their remaining years in the workforce to be able to provide a substantial supplement to their Social Security. In other words, as a result of the collapse of the housing bubble, this group also is likely to be almost entirely dependent on Social Security for their retirement income. In this context, plans to cut Social Security and/or Medicare benefits for near-retirees seem especially perverse. The housing bubble was allowed to grow unchecked as a result of incredible economic mismanagement. Now, many of the people who share the blame for this mismanagement propose to cut the benefits for the victims of their mistakes. 9 These projections are taken from an analysis of the Federal Reserve Board s Survey of Consumer Finance. See Rosnick and Baker (2010).
14 CEPR The Budget Deficit Scare Story and the Great Recession 12 The Foreign Debt Scare Stories Many of the papers that discuss the problem of the deficit and debt highlight the fact that a large and growing portion of the debt is held by foreigners, especially the government of China. Focus groups may show that raising the fear of foreign or Chinese ownership of debt is effective politics, but this scare tactic completely misrepresents the relevant policy issues. On its face, there is no obvious reason that we should care who owns the government debt. The dumping of government bonds by a hostile government would cause the interest rate on these bonds to rise. That would mean that holders of other debt that had previously offered somewhat higher interest rates than government bonds, such as mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac, would decide to switch to government bonds to take advantage of the higher interest rate. Similarly, investors might switch from holding debt of safe and long-established corporations, like Verizon and General Electric, to holding government debt, if the interest rate on government bonds had risen. They may also switch from holding the debt of other countries, if interest rates on U.S. government debt suddenly became higher than the interest rates on countries viewed as less safe. Because these markets are so huge, it is likely that the substitutions from other assets to U.S. government bonds would eliminate most of the interest rate hike that immediately resulted from an initial sell-off by China or any other investor that might be politically motivated. While a sell-off could lead to a short-term increase in U.S. interest rates, it is unlikely that any substantial increase would be sustained through time, unless there were fundamental problems in the U.S. economy. In that case, interest rates would likely rise, regardless of who owned the debt. There is an issue about foreign ownership of U.S. financial assets more generally, since this means that the income from these assets will be paid out to foreigners, thereby reducing the resources available for domestic consumption and investment. However, the extent to which foreign investors purchase U.S. assets depends on the trade deficit, not the budget deficit. The trade deficit in turn depends on the value of the dollar, an issue that is almost never discussed by those complaining about foreign ownership of the debt. The logic here is very simple. A high dollar makes imports to the United States relatively cheap; therefore people in the United States will buy more imported goods and services. Similarly, a high dollar makes our exports more expensive to people living in other countries, so they will buy fewer U.S. exports. The over-valued dollar leads to a trade deficit, which gives China and other foreign countries the means to buy up large amounts of U.S. financial assets. There is no particular reason to care whether foreigners opt to buy U.S. government debt or private assets like stocks and bonds. In either case, there will be an outflow of future income generated in the U.S. economy to foreign investors, leaving less to be consumed domestically. Furthermore, if we are concerned for political reasons that foreigners hold large amounts of U.S. government bonds, then we should also be concerned if they hold large amounts of private sector stock and bonds. Any time they choose, they can sell off their holdings of stock and bonds, and use the money to buy U.S. government debt. (Foreign investors are smart enough to know this.) So, the point made by the deficit hawks about the share of the government debt held by foreigners is utterly
15 CEPR The Budget Deficit Scare Story and the Great Recession 13 meaningless from a policy standpoint, even if it may be a useful point to advance their political agenda. The budget deficit is irrelevant to the trade deficit, apart from its potential impact in raising the value of the dollar. At any given level of output and value of the dollar, our trade deficit would be the same regardless of whether the government is running a huge surplus or a huge deficit. Of course, a budget deficit can stimulate GDP, as it is doing now, which does lead to higher imports, but few deficit hawks argue that we should lower output in order to reduce our trade deficit. In short, the issue about the foreign ownership of the government debt is entirely a political ploy. It has nothing to do with the fundamental economic or policy issues around either the budget or trade deficit. The debate over the budget deficit should be focused on serious issues and not crude scare tactics. Conclusion The recent debate over the budget deficit has been driven largely by unfounded fears and misrepresentations of basic economic relationships. The most often asserted claims of the leading deficit hawks are simply untrue. The surge in the deficit in the last two fiscal years was not the result of an irresponsible Congress or a broken political system. It was a direct result of the crash of the housing bubble. The failure by policymakers was to not rein in this bubble before it grew to a size where its inevitable collapse would devastate the economy. Insofar as there is any notable increase in the deficit over the next decade due to policy changes rather than economic circumstances, it is primarily the result of higher defense spending associated with the wars in Afghanistan and Iraq. Arguably, Congress can be blamed for being unwilling to pay for the wars that it supports, but it is worth noting that Congress is not suffering from a general pattern of reckless spending or tax cuts. It is also important to note that the projections of a longer term deficit crisis are driven entirely by exploding private sector health care costs. If the country can repair its health care system, or promote trade to allow people to take advantage of more efficient health care systems in other countries, then future deficits will be quite manageable. Finally, the discussion of foreign ownership of government debt fundamentally misrepresents its cause and importance in a way that seems intended to exploit xenophobic fears. There is a legitimate concern about the drain of future income that results from foreign ownership of U.S. financial assets, but this is a completely separate issue from the percentage of the government debt held by foreigners. Furthermore, foreign ownership of U.S. assets depends on the trade deficit. It has no direct relationship to the government deficit. Apparently, the deficit hawks who take this route do not feel that they can gain public support if they base their argument on real issues.
16 CEPR The Budget Deficit Scare Story and the Great Recession 14 References Baker, Dean, Medicare Choice Plus: The Answer to the Long-Term Deficit Problem, Washington, D.C.: Center for Economic and Policy Research, available at Baker, Dean and Hye Jin Rho, Free Trade in Health Care: The Gains from Globalized Medicare and Medicaid, Washington, D.C.: Center for Economic and Policy Research, available at Congressional Budget Office, 2008(a). The Budget and Economic Outlook: Fiscal Years , Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2008(b). A Preliminary Analysis of the President s Budget and an Update of CBO s Budget and Economic Outlook, Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2008(c). The Budget and Economic Outlook: An Update, Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2009(a). The Budget and Economic Outlook: Fiscal Years , Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2009(b). Estimated Macroeconomic Impacts of the American Recovery and Reinvestment Act of 2009, Letter to the Honorable Charles E. Grassley, Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2009(c). A Preliminary Analysis of the President s Budget and an Update of CBO s Budget and Economic Outlook, Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2009(d). The Budget and Economic Outlook: An Update, Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, 2009(e). The Long Term Budget Outlook, Washington, D.C.: Congressional Budget Office available at Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years , Washington, D.C.: Congressional Budget Office available at
17 CEPR The Budget Deficit Scare Story and the Great Recession 15 Mattoo, Aaditya and Randeep Rathindra, How Health Insurance Inhibits Trade in Health Care, Health Affairs, March/April: Rosnick, David and Dean Baker, The Impact of the Housing Crash on the Wealth of the Baby Boom Cohorts, Journal of Aging and Social Policy (forthcoming).
The Key to Stabilizing House Prices: Bring Them Down
The Key to Stabilizing House Prices: Bring Them Down Dean Baker December 2008 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net
More informationStatement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net)
Statement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net) Before the U.S.-China Economic and Security Review Commission, hearing on China and the Future of Globalization.
More informationThe Wealth of Households: An Analysis of the 2013 Survey of Consumer Finances
November 214 The Wealth of Households: An Analysis of the 213 Survey of Consumer Finances By David Rosnick and Dean Baker* Center for Economic and Policy Research 1611 Connecticut Ave. NW Suite 4 Washington,
More informationThe Problem with Structural Unemployment in the U.S.
Issue Brief October 2012 The Problem with Structural Unemployment in the U.S. BY DEAN BAKER* It took centuries worth of research and evidence for astronomers to convince the world, including their fellow
More informationThe Impact on Inequality of Raising the Social Security Retirement Age
The Impact on Inequality of Raising the Social Security Retirement Age David Rosnick and Dean Baker April 2012 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington,
More information11/6/2013. Chapter 16: Government Debt. The U.S. experience in recent years. The troubling long-term fiscal outlook
Chapter 1: Government Debt Indebtedness of the world s governments Country Gov Debt (% of GDP) Country Gov Debt (% of GDP) Japan 17 U.K. 9 Italy 11 Netherlands Greece 11 Norway Belgium 9 Sweden U.S.A.
More informationAdjusting to a Changing Economic World. Good afternoon, ladies and gentlemen. It s a pleasure to be with you here in Montréal today.
Remarks by David Dodge Governor of the Bank of Canada to the Board of Trade of Metropolitan Montreal Montréal, Quebec 11 February 2004 Adjusting to a Changing Economic World Good afternoon, ladies and
More informationFirst Time Underwater
First Time Underwater The Impact of the First-time Homebuyer Tax Credit Dean Baker April 2012 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 0 Washington, D.C. 20009 202-293-53
More informationcepr briefing paper Defaulting on The Social Security Trust Fund Bonds: Winner and Losers CENTER FOR ECONOMIC AND POLICY RESEARCH SUMMARY Dean Baker 1
cepr CENTER FOR ECONOMIC AND POLICY RESEARCH briefing paper Defaulting on The Social Security Trust Fund Bonds: Winner and Losers Dean Baker 1 July 23, 2001 SUMMARY The United States government has never
More informationChapter 18. MODERN PRINCIPLES OF ECONOMICS Third Edition
Chapter 18 MODERN PRINCIPLES OF ECONOMICS Third Edition Fiscal Policy Outline Fiscal Policy: The Best Case The Limits to Fiscal Policy When Fiscal Policy Might Make Matters Worse So When Is Fiscal Policy
More informationHow To Find Out How Effective Stimulus Is
Do Tax Cuts Boost the Economy? David Rosnick and Dean Baker September 2011 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net
More informationThe Myth of Expansionary Fiscal Austerity
The Myth of Expansionary Fiscal Austerity Dean Baker October 2010 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net CEPR The
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from
More informationThe Impact of Cutting Social Security Cost of Living Adjustments on the Living Standards of the Elderly
The Impact of Cutting Social Security Cost of Living Adjustments on the Living Standards of the Elderly Dean Baker and David Rosnick September 2011 Center for Economic and Policy Research 1611 Connecticut
More informationNote: This feature provides supplementary analysis for the material in Part 3 of Common Sense Economics.
1 Module C: Fiscal Policy and Budget Deficits Note: This feature provides supplementary analysis for the material in Part 3 of Common Sense Economics. Fiscal and monetary policies are the two major tools
More informationChapter 10 Fiscal Policy Macroeconomics In Context (Goodwin, et al.)
Chapter 10 Fiscal Policy Macroeconomics In Context (Goodwin, et al.) Chapter Overview This chapter introduces you to a formal analysis of fiscal policy, and puts it in context with real-world data and
More informationThe Return of Saving
Martin Feldstein the u.s. savings rate and the global economy The savings rate of American households has been declining for more than a decade and recently turned negative. This decrease has dramatically
More informationResearch. What Impact Will Ballooning Government Debt Levels Have on Government Bond Yields?
Research What Impact Will Ballooning Government Debt Levels Have on Government Bond Yields? The global economy appears to be on the road to recovery and the risk of a double dip recession is receding.
More informationEcon 202 Section 4 Final Exam
Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys $40
More informationTHE POTENTIAL MACROECONOMIC EFFECT OF DEBT CEILING BRINKMANSHIP
OCTOBER 2013 THE POTENTIAL MACROECONOMIC EFFECT OF DEBT CEILING BRINKMANSHIP Introduction The United States has never defaulted on its obligations, and the U. S. dollar and Treasury securities are at the
More informationWhy a Floating Exchange Rate Regime Makes Sense for Canada
Remarks by Gordon Thiessen Governor of the Bank of Canada to the Chambre de commerce du Montréal métropolitain Montreal, Quebec 4 December 2000 Why a Floating Exchange Rate Regime Makes Sense for Canada
More informationWith lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy.
The Digital Economist Lecture 9 -- Economic Policy With lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy. There is still great debate about
More informationFiscal Policy: Structural/Cyclical. Size of government Questions And Business Cycle Smoothing Issues
Fiscal Policy: Structural/Cyclical Size of government Questions And Business Cycle Smoothing Issues When is government a preferred provider of goods? What is a PURE PUBLIC GOOD? My consumption of the good
More informationLecture 16: Financial Crisis
Lecture 16: Financial Crisis What is a Financial Crisis? A financial crisis occurs when there is a particularly large disruption to information flows in financial markets, with the result that financial
More informationThe Global Financial Crisis: Causes and Solutions
The Global Financial Crisis: Causes and Solutions Mohammad Ramadhan and Adel Naseeb This paper describes the process that caused the financial credit crisis. It also analyzes the factors that led to the
More informationCelebrating Pork. The Dubious Success of the Medicare Drug Benefit. Dean Baker. March 2007
Celebrating Pork The Dubious Success of the Medicare Drug Benefit Dean Baker March 2007 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202 293 5380
More informationExam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.
Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high
More informationEffects on pensioners from leaving the EU
Effects on pensioners from leaving the EU Summary 1.1 HM Treasury s short-term document presented two scenarios for the immediate impact of leaving the EU on the UK economy: the shock scenario and severe
More informationThe Economic Impact of a U.S. Slowdown on the Americas
Issue Brief March 2008 Center for Economic and Policy Research 1611 Connecticut Ave, NW Suite 400 Washington, DC 20009 tel: 202-293-5380 fax:: 202-588-1356 www.cepr.net The Economic Impact of a U.S. Slowdown
More informationLECTURE NOTES ON MACROECONOMIC PRINCIPLES
LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution
More informationU.S. Fixed Income: Potential Interest Rate Shock Scenario
U.S. Fixed Income: Potential Interest Rate Shock Scenario Executive Summary Income-oriented investors have become accustomed to an environment of consistently low interest rates. Yields on the benchmark
More informationCongressional Budget Office s Preliminary Analysis of President Obama s Fiscal Year 2012 Budget
Congressional Budget Office s Preliminary Analysis of President Obama s Fiscal Year 2012 Budget SUMMARY The Congressional Budget Office s (CBO) Preliminary Analysis of the President s FY 2012 Budget released
More informationMacroeconomics Instructor Miller Fiscal Policy Practice Problems
Macroeconomics Instructor Miller Fiscal Policy Practice Problems 1. Fiscal policy refers to changes in A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives.
More informationPolitics, Surpluses, Deficits, and Debt
Defining Surpluses and Debt Politics, Surpluses,, and Debt Chapter 11 A surplus is an excess of revenues over payments. A deficit is a shortfall of revenues relative to payments. 2 Introduction After having
More informationDeficits as far as the eye can see
Testimony of Mark A. Calabria, Ph.D. Director, Financial Regulation Studies, Cato Institute Submitted to the Subcommittee on Insurance, Housing, & Community Opportunity House Committee on Financial Services
More informationCommentary: What Do Budget Deficits Do?
Commentary: What Do Budget Deficits Do? Allan H. Meltzer The title of Ball and Mankiw s paper asks: What Do Budget Deficits Do? One answer to that question is a restatement on the pure theory of debt-financed
More informationSRAS. is less than Y P
KrugmanMacro_SM_Ch12.qxp 11/15/05 3:18 PM Page 141 Fiscal Policy 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant
More informationMACROECONOMIC ANALYSIS OF VARIOUS PROPOSALS TO PROVIDE $500 BILLION IN TAX RELIEF
MACROECONOMIC ANALYSIS OF VARIOUS PROPOSALS TO PROVIDE $500 BILLION IN TAX RELIEF Prepared by the Staff of the JOINT COMMITTEE ON TAXATION March 1, 2005 JCX-4-05 CONTENTS INTRODUCTION... 1 EXECUTIVE SUMMARY...
More informationEconomics 101 Multiple Choice Questions for Final Examination Miller
Economics 101 Multiple Choice Questions for Final Examination Miller PLEASE DO NOT WRITE ON THIS EXAMINATION FORM. 1. Which of the following statements is correct? a. Real GDP is the total market value
More informationIn recent years, fiscal policy in China has been prudent. Fiscal deficits
1 Fiscal Policy in China STEVEN DUNAWAY AND ANNALISA FEDELINO* In recent years, fiscal policy in China has been prudent. Fiscal deficits have been lower than budgeted, because revenue overperformances
More informationThe U.S. and Midwest Economy in 2016: Implications for Supply Chain Firms
The U.S. and Midwest Economy in 2016: Implications for Supply Chain Firms Rick Mattoon Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Right Place Supply Chain Management Conference
More informationThe Benefits of a Financial Transactions Tax
The Benefits of a Financial Transactions Tax Dean Baker December 2008 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net The
More informationExecutive Summary The Macroeconomic Effects of an Add-on Value Added Tax
The Macroeconomic Effects of an Add-on Value Added Tax Prepared for the National Retail Federation Prepared by Drs. Robert Carroll, Robert Cline, and Tom Neubig Ernst & Young LLP and Drs. John Diamond
More informationPerspective. Economic and Market. Does a 2% 10-year U.S. Bond Yield Make Sense When...
James W. Paulsen, Ph.D. Perspective Bringing you national and global economic trends for more than 30 years Economic and Market January 27, 2015 Does a 2% 10-year U.S. Bond Yield Make Sense When... For
More informationTHE FINANCIAL CRISIS: Is This a REPEAT OF THE 80 S FOR AGRICULTURE? Mike Boehlje and Chris Hurt, Department of Agricultural Economics
THE FINANCIAL CRISIS: Is This a REPEAT OF THE 80 S FOR AGRICULTURE? Mike Boehlje and Chris Hurt, Department of Agricultural Economics The current financial crisis in the capital markets combined with recession
More informationchapter: Solution Fiscal Policy
Fiscal Policy chapter: 28 13 ECONOMICS MACROECONOMICS 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to
More informationThe Skyrocketing Federal Budget Deficit:
The Skyrocketing Federal Budget Deficit: Worrisome or Not? JA Worldwide Introduction In fiscal year 2007, the United States government ran a budget deficit of $161 billion; literally, this means the government
More informationTHE STATE OF THE ECONOMY
THE STATE OF THE ECONOMY CARLY HARRISON Portland State University Following data revisions, the economy continues to grow steadily, but slowly, in line with expectations. Gross domestic product has increased,
More informationThe Savings from an Efficient Medicare Prescription Drug Plan
The Savings from an Efficient Medicare Prescription Drug Plan Dean Baker January 2006 Center for Economic and Policy Research 1611 Connecticut Avenue, NW Suite 400 Washington, D.C. 20009 Tel: 202-293-5380
More informationUS Sovereign Debt - Truth and Consequences
US Sovereign Debt - Truth and Consequences The rapid increase in US Federal debt over the last few years has recently moved the US from its once stellar position of a AAA to AA+ as S&P changed its rating
More informationSupplemental Unit 5: Fiscal Policy and Budget Deficits
1 Supplemental Unit 5: Fiscal Policy and Budget Deficits Fiscal and monetary policies are the two major tools available to policy makers to alter total demand, output, and employment. This feature will
More informationCHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY
CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How
More informationEurope s Financial Crisis: The Euro s Flawed Design and the Consequences of Lack of a Government Banker
Europe s Financial Crisis: The Euro s Flawed Design and the Consequences of Lack of a Government Banker Abstract This paper argues the euro zone requires a government banker that manages the bond market
More informationa) Aggregate Demand (AD) and Aggregate Supply (AS) analysis
a) Aggregate Demand (AD) and Aggregate Supply (AS) analysis Determinants of AD: Aggregate demand is the total demand in the economy. It measures spending on goods and services by consumers, firms, the
More informationLecture 4: The Aftermath of the Crisis
Lecture 4: The Aftermath of the Crisis 2 The Fed s Efforts to Restore Financial Stability A financial panic in fall 2008 threatened the stability of the global financial system. In its lender-of-last-resort
More information2013 global equity outlook: Searching for alpha in a stock picker s market
March 2013 2013 global equity outlook: Searching for alpha in a stock picker s market Saira Malik, Head of Global Equity Research, TIAA-CREF Executive summary The outlook for equity markets is favorable
More informationFLEXIBLE EXCHANGE RATES
FLEXIBLE EXCHANGE RATES Along with globalization has come a high degree of interdependence. Central to this is a flexible exchange rate system, where exchange rates are determined each business day by
More informationThe U.S. current account deficit has grown steadily since 1991,
Is The Large U.S. Current Account Deficit Sustainable? By Jill A. Holman The U.S. current account deficit has grown steadily since 1991, hitting record levels of 3.6 percent of GDP in 1999 and 4.4 percent
More informationAnswer Outline. ECONOMICS 353 L. Tesfatsion/Fall 06 EXERCISE 6: Six Questions (8 Points Total) DUE: Tues, October 10, 2006, 2:10pm
Answer Outline ECONOMICS 353 L. Tesfatsion/Fall 06 EXERCISE 6: Six Questions (8 Points Total) DUE: Tues, October 10, 2006, 2:10pm **IMPORTANT REMINDER: LATE ASSIGNMENTS WILL NOT BE ACCEPTED NO EXCEPTIONS**
More informationWHY STUDY PUBLIC FINANCE?
Solutions and Activities to CHAPTER 1 WHY STUDY PUBLIC FINANCE? Questions and Problems 1. Many states have language in their constitutions that requires the state to provide for an adequate level of education
More informationThe Balance of Payments, the Exchange Rate, and Trade
Balance of Payments The Balance of Payments, the Exchange Rate, and Trade Policy The balance of payments is a country s record of all transactions between its residents and the residents of all foreign
More informationFederal Budget in Pictures CUT SPENDING // FIX THE DEBT // REDUCE THE TAX BURDEN$
2015 Federal Budget in Pictures CUT SPENDING // FIX THE DEBT // REDUCE THE TAX BURDEN$ 2015 Federal Budget in Pictures CUT SPENDING // FIX THE DEBT // REDUCE THE TAX BURDEN Thomas A. Roe Institute for
More informationDon t Double Our Rates
Don t Double Our Rates An Issue Brief Congress should be helping to keep college affordable, not making it more expensive for student loan borrowers to pay for college Background Unless Congress acts decisively,
More informationThe 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education
POLICY BRIEF Visit us at: www.tiaa-crefinstitute.org. September 2004 The 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education The 2004 Social
More informationReducing Waste with an Efficient Medicare Prescription Drug Benefit
Issue Brief January 2013 Reducing Waste with an Efficient Medicare Prescription Drug Benefit BY DEAN BAKER* When Congress was debating the Medicare drug benefit in 2003, there were many who advocated that
More informationStrategy Document 1/03
Strategy Document / Monetary policy in the period 5 March to 5 June Discussed by the Executive Board at its meeting of 5 February. Approved by the Executive Board at its meeting of 5 March Background Norges
More informationEcon 202 Final Exam. Table 3-1 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5
Econ 202 Final Exam 1. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher. b. left, so that at any inflation rate unemployment
More informationS&P 500 Composite (Adjusted for Inflation)
12/31/1820 03/31/1824 06/30/1827 09/30/1830 12/31/1833 03/31/1837 06/30/1840 09/30/1843 12/31/1846 03/31/1850 06/30/1853 09/30/1856 12/31/1859 03/31/1863 06/30/1866 09/30/1869 12/31/1872 03/31/1876 06/30/1879
More informationThe Euro and the Stability Pact. Martin Feldstein *
The Euro and the Stability Pact Martin Feldstein * This paper is an expansion of the talk that I gave at the Allied Social Sciences Association meeting on January 8, 2005. The first part of the paper presents
More informationChapter 11. International Economics II: International Finance
Chapter 11 International Economics II: International Finance The other major branch of international economics is international monetary economics, also known as international finance. Issues in international
More informationStraw. Gold into. Turning. Reality Check. How Huge Federal Surpluses Quickly Became Equally Massive Deficits A CENTURY FOUNDATION GUIDE TO THE ISSUES
Reality Check Turning Gold into Straw How Huge Federal Surpluses Quickly Became Equally Massive Deficits ^ iwww.tcf.org A CENTURY FOUNDATION GUIDE TO THE ISSUES 1 Turning Gold into Straw How Huge Federal
More information2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013
2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013 U.S. stock market performance in 2012 * +12.59% total return +6.35%
More informationA BRIEF HISTORY OF BRAZIL S GROWTH
A BRIEF HISTORY OF BRAZIL S GROWTH Eliana Cardoso and Vladimir Teles Organization for Economic Co operation and Development (OECD) September 24, 2009 Paris, France. Summary Breaks in Economic Growth Growth
More informationImpact of Global Financial Crisis on South Asia
Impact of Global Financial Crisis on South Asia February 17, 2009 - The global financial crisis hit South Asia at a time when it had barely recovered from severe terms of trade shock resulting from the
More informationHomeownership in a Bubble: The Fast Path to Poverty? Dean Baker and Simone Baribeau 1. August 13, 2003
cepr Center for Economic and Policy Research Issue Brief Homeownership in a Bubble: The Fast Path to Poverty? Dean Baker and Simone Baribeau 1 August 13, 2003 Center for Economic and Policy Research 1611
More informationTaipei - Economic Profile in 2008
The Market Profile of Taiwan Non-Life Insurance Industry in the year of 2008 Economic Profile in 2008 I. Economic situation (1) International economy In 2008, affected by extended USA credit crisis, the
More information6. Economic Outlook. The International Economy. Graph 6.2 Terms of Trade Log scale, 2012/13 average = 100
6. Economic Outlook The International Economy Growth of Australia s major trading partners is expected to be around its long-run average in 015 and 016 (Graph 6.1). Forecasts for 015 have been revised
More informationLecture 2. Output, interest rates and exchange rates: the Mundell Fleming model.
Lecture 2. Output, interest rates and exchange rates: the Mundell Fleming model. Carlos Llano (P) & Nuria Gallego (TA) References: these slides have been developed based on the ones provided by Beatriz
More information7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts
Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),
More informationPeak Debt and Income
Peak Debt and Income! Ronald M. Laszewski ( 25 July 21) Just over two years ago, in a paper on Peak Debt, I analyzed the effect that reaching a limit on the amount of debt that can be supported by personal
More informationShould banks be allowed to go into bankruptcy
Should banks be allowed to go into bankruptcy Robert Kärrberg, Victor Sellman Abstract A report on what consequences bankruptcy s in financial institutes have on society. The group has been equally involved
More informationDO NOT WRITE ANY ANSWERS IN THIS SOURCE BOOKLET. YOU MUST ANSWER THE QUESTIONS IN THE PROVIDED ANSWER BOOKLET.
SPECIMEN MATERIAL AS ECONOMICS 713/2 Paper 2 The national economy in a global context Source booklet DO NOT WRITE ANY ANSWERS IN THIS SOURCE BOOKLET. YOU MUST ANSWER THE QUESTIONS IN THE PROVIDED ANSWER
More informationThe Case for a Tax Cut
The Case for a Tax Cut Alan C. Stockman University of Rochester, and NBER Shadow Open Market Committee April 29-30, 2001 1. Tax Increases Have Created the Surplus Any discussion of tax policy should begin
More informationGovernment Debt. By Jeremy Sandford. The Park Place Economist / vol. IX
By Jeremy Sandford I. INTRODUCTION Recently, Treasury Secretary Larry Summers implied that the government would be de creasing the supply of government bonds in order to pay down outstanding debt. This
More informationLong run v.s. short run. Introduction. Aggregate Demand and Aggregate Supply. In this chapter, look for the answers to these questions:
33 Aggregate Demand and Aggregate Supply R I N C I L E S O F ECONOMICS FOURTH EDITION N. GREGOR MANKIW Long run v.s. short run Long run growth: what determines long-run output (and the related employment
More informationEXTENDING THE PRESIDENT S TAX CUTS AND AMT RELIEF WOULD COST $4.4 TRILLION THROUGH 2018 By Aviva Aron-Dine
820 First Street NE, Suite 510 Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056 center@cbpp.org www.cbpp.org Revised March 28, 2008 EXTENDING THE PRESIDENT S TAX CUTS AND AMT RELIEF WOULD COST
More informationWhy a Credible Budget Strategy Will Reduce Unemployment and Increase Economic Growth. John B. Taylor *
Why a Credible Budget Strategy Will Reduce Unemployment and Increase Economic Growth John B. Taylor * Testimony Before the Joint Economic Committee of the Congress of the United States June 1, 011 Chairman
More informationLars Osberg. Department of Economics Dalhousie University 6214 University Avenue Halifax, Nova Scotia B3H 3J5 CANADA Email: Lars.Osberg@dal.
Not Good Enough to be Average? Comments on The Weak Jobs recovery: whatever happened to the great American jobs machine? by Freeman and Rodgers Lars Osberg Department of Economics Dalhousie University
More informationCHAPTER 3 THE LOANABLE FUNDS MODEL
CHAPTER 3 THE LOANABLE FUNDS MODEL The next model in our series is called the Loanable Funds Model. This is a model of interest rate determination. It allows us to explore the causes of rising and falling
More informationIs U.S. Household Savings Rate Dangerously Low?
GLOBAL COMMENTARY July 22, 28 David Malpass 212-876-44 dmalpass@encimaglobal.com Is U.S. Household Savings Rate Dangerously Low? The front page of Sunday s New York Times highlighted the heavy household
More informationEC2105, Professor Laury EXAM 2, FORM A (3/13/02)
EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each
More informationAverage Federal Income Tax Rates for Median-Income Four-Person Families
820 First Street, NE, Suite 510, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056 center@cbpp.org http://www.cbpp.org April 10, 2002 OVERALL FEDERAL TAX BURDEN ON MOST FAMILIES INCLUDING MIDDLE-
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chatper 34 International Finance - Test Bank MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The currency used to buy imported goods is A) the
More informationDebt, Deficits, and the Economy. John J. Seater
Debt, Deficits, and the Economy John J. Seater When conversation turns to the economy, one of the most popular topics of discussion is the government deficit. Newspaper columnists, TV pundits, and of course
More informationwww.citizenshipteacher.co.uk 2011 16228 1
The stock market www.citizenshipteacher.co.uk 2011 16228 1 Lesson objectives I will understand what a stock market is. I will identify what caused the downturn in the American Stock Market. www.citizenshipteacher.co.uk
More informationIV. Special feature: Foreign currency deposits of firms and individuals with banks in China
Robert N McCauley (+852) 2878 71 RMcCauley@bis.org.hk YK Mo (+852) 2878 71 IV. Special feature: deposits of firms and individuals with banks in China In principle, an economy with capital controls can
More informationPROJECTION OF THE FISCAL BALANCE AND PUBLIC DEBT (2012 2027) - SUMMARY
PROJECTION OF THE FISCAL BALANCE AND PUBLIC DEBT (2012 2027) - SUMMARY PUBLIC FINANCE REVIEW February 2013 SUMMARY Key messages The purpose of our analysis is to highlight the risks that fiscal policy
More informationGains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages
September 2013 Gains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages By David Rosnick* Center for Economic and Policy Research 1611 Connecticut Ave. NW Suite 400 Washington,
More informationDebt and Deficits. David Rosen
Debt and Deficits David Rosen Grade Levels: 9,10,11,12 Document Type: Supplementary Materials Description: Examines the national debt and deficits, looks at their size and impact, and discusses various
More informationINTERNATIONAL ECONOMIC PERFORMANCE SINCE THE STOCK MARKET BUBBLE
INTERNATIONAL ECONOMIC PERFORMANCE SINCE THE STOCK MARKET BUBBLE A JOINT ECONOMIC COMMITTEE STUDY Vice Chairman Jim Saxton (R-NJ) Joint Economic Committee United States Congress March 2004 Executive Summary
More information